Using data to improve financial behavior : designing the personal finance platform

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March 29, 2019

MASTER THESIS

USING DATA TO IMPROVE FINANCIAL BEHAVIOR

DESIGNING THE PERSONAL FINANCE PLATFORM

Mick van der Vegt

Industrial Engineering and Management (IEM)

Specialization Financial Engineering and Management (FEM)

Department Industrial Engineering and Business Information Systems (IEBIS) Faculty Behavioural Management and Social Sciences (BMS)

Exam committee:

dr. R.A.M.G Joosten (IEBIS) dr. B. Roorda (IEBIS)

A.W. van den Berg, MSc (Topicus) O. van Haarlem (Topicus)

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Foreword

Dear reader,

You are currently reading the result of the eleven months of research and design that concludes my Master Industrial Engineering and Management. During my masters I wanted to combine Finance and IT. Which is also the reason I accepted this graduation assignment. I wanted to use my practical knowledge and experience in IT to solve concrete financial problems. And I think I achieved that, not only in this graduation assignment, but also during the course of the entire master program.

First, I want to thank my supervisors at Topicus for their contribution and feedback. Without the sharp comments of Asjen, this thesis would be far less structured and he forced me to keep focused on the actual problem at hand. And Olaf contributed not only to the look and feel of the Personal Finance Platform, but also helped me create a design that focused on the user instead of the technique. I also want to thank my colleagues at Topicus who helped me brainstorm, design, verify, test and present in ways I have not done before.

Also, I would like to thank supervisors at the University, Reinoud and Abhishta. Rein- oud helped me to raise this thesis to the academic level, and ensured that every statement, citation and reference was correct. And Abhishta’s final suggestions helped to raise the dis- cussion to a higher level and ensured that every subject was covered.

Finally, I want to thank my girlfriend Aniek who not only kept me motivated, and focused on the result, during the whole assignment. But also proofread every letter of this report multiple times. Without her, this report would have been very difficult to read and understand.

Hopefully you will enjoy the reading!

Mick van der Vegt

Deventer, 19^th of March 2019

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Executive summary

This graduation research project is performed in collaboration with Topicus and the Univer- sity of Twente with the aim of designing a software product that activates and helps people to live a responsible financial life. This thesis describes the research and design of a software platform that will assist Dutch consumers in handling their finances in a responsible way.

This Personal Finance Platform uses multiple data-sources (PSD2 and Ockto) to provide the user accurate insights in his financial situation.

We identified the main problem as a lack of awareness of the financial situation by the Dutch consumer. The consumer is currently exposed to large financial risks that he is often unprepared for, or even unaware of. There is a large amount of interest-only mortgage debt that is expected to remain after the mortgage ends. The Netherlands face an increasing number of self-employed workers, who are exposed to much higher risks then salaried employees.

The number of debt assistance requests is rapidly increasing. These risks, combined with the fact that a lot of households experience difficulties getting by and saving enough, are concerning.

We also found numerous opportunities that the consumer could take advantage of. The current low interest rates create the possibility of refinancing debt with lower interest costs, and make (sustainable) investments yield much higher returns than the current saving returns. Additionally, applying for an unused but applicable tax benefit, or checking for double or missing insurances, could be very beneficial.

Our approach to solving the problem was by determining what financial responsible behavior is, and to find ways to increase financial responsibility. Financial responsible behavior is described as behaving in such a way that finances are kept in balance in both short and long term. The search into increasing financially responsible behavior yielded several ways to increase financial responsibility and discipline, such as nudging, financial education, setting SMART-goals and (financial) planning. We compared several existing software solutions that share the same goal. Finally, we used these results in the design of the Personal Finance Platform.

Through various brainstorm sessions, we created six concept solutions to solve the given problem. Together with Topicus we selected one concept that was further developed into the Personal Finance Platform. This platform provides a full overview of the financial situation of a consumer. The platform is able to achieve this by gathering and analyzing data from Ockto, PSD2 and user input. This provided overview is structured in six themes:

• Home and mortgage.

• Income and expenses.

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• Tax benefits.

• Pension.

• Savings and capital.

• Loans and debt.

Under each theme, several checks calculate based on the provided data whether the user has a potential problem or an opportunity that has to be acted upon. The six themes combined provide an overall score of the financial situation.

To verify the demand for the Personal Finance Platform, we sent out a survey via a Facebook advertisement. The goal was to indicate which features were found interesting and useful, and which were not. The survey yielded 71 participants, and the analysis of the survey delivered various interesting results. Results that were not only useful for the development of the platform, but possibly also for other Topicus projects in the future. We found out that the interests of the prospective users are mainly in cutting fixed costs, future pensions, savings for unexpected expenses and unused tax benefits.

We used the results from the survey to create a Minimum Viable Product (MVP) prototype based on the designs of the Personal Finance Platform. This prototype was then used in a User eXperience (UX) test with five participants. The goal of this test was to determine the viability of the Personal Finance Platform as a product. During the test, several participants stated that they would use this solution in real-life, and all of the participants understood the information that the platform offers. However, we also received several suggestions for improvements, issues with the trust users have in the platform and privacy concerns related to the usage of personal data in the application. The main recommendation that followed from the UX-test is that this platform should be developed with a party or organization that is trusted by its potential users, such as a bank or government institution.

Finally, this report contains several conclusions and recommendations for Topicus and possible further research. If Topicus decides to develop the Personal Finance Platform further, we suggest several points that Topicus should look into (e.g. business case, launching partner or customer, further development) in order to make it a viable finished product. For science, we propose several interesting topics for further research.

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Acronyms

API Application Programming Interface. 47, 48, 50, 53, 54, 56, 57, 59 CBS Central Bureau for Statistics. 13, 18, 23

CSV Comma Sperated Values. 38

DNB Dutch National Bank. 13, 18, 19, 21

DSRM Design Science Research Methodology. 12, 13, 62 GDPR General Data Protection Regulation. 75, 79 MVP Minimum Viable Product. 3, 66, 74

Nibud Dutch Institute for Budget Information. 7, 8, 13, 16, 18, 19, 22, 29, 37, 43, 47, 57, 59

PSD2 Payment Service Directive 2. 2, 7, 36, 40, 42, 44, 47, 59, 68 SaaS Software as a Service. 7

SMART Specific, Measurable, Acceptable, Realistic and Timely. 33, 38 UX User eXperience. 3, 5, 14, 46, 66, 74, 77

WOZ-value Real estate tax value. 51

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Chapter 1 Introduction

1.1 Project initiator

Topicus Finance B.V. is a financial software company located in Deventer. They are special- ized in developing financial Software as a Service (SaaS) solutions for consumers, as well as back-end software for mortgages and banks. An example of one of their consumer products is Monli, a platform that helps people make a sound financial decisions in important moments in their life. The platform includes a checklist for buying a house, a tool for mortgage calculations and game that teaches children to save and spend their money wisely. Topicus is an IT-company with impact, their mission is to develop products that have an impact on society.

1.2 Problem introduction

The Dutch Institute for Budget Information (Nibud) states that only 32% of the Dutch households save a fixed amount of money each month (Nibud, 2018c). Considering the current saving climate, with low interest rates (Spaarrente.nl, 2018), this is understandable.

But from a broader perspective, it can be beneficial to start thinking about financial plans now instead of later. Not only could it be sensible to lower the exposure to unwanted risks and save resources for the future, but also increase the impact achieved with the available financial resources. For example investing in sustainable house improvements such as solar panels.

Financial products are often conceived as complex, moreover there are a lot of different products and options. Therefore, financial planning can be perceived as a difficult task to start with. Some financial institutions offer small applications (e.g. Straks Heb Je Het Nodig) to activate consumers to think about their financial future (Rabobank,2018b). There is still a lot of room for improvement, as most tools are currently just a questionnaire to steer you towards a simple capital goal instead of an intelligent personalized finance plan.

Through new data sources from both the government and financial institutions, more and more data are becoming available for innovative companies to access and create new products.

Using the new Payment Service Directive 2 (PSD2) standard (Nederlandse Vereniging van Banken, 2018) private companies obtain the ability to access financial records from their clients. This information coupled with other (possibly) available data sources such as income tax records and pension information, provides the possibility of creating a tool that helps

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people with their personal finances and activates them to work towards a better financial future.

1.3 Core problem

The core problem is that (some) people are unaware of their financial situation and neglect structured planning to improve it. The goal of this project is to find a smart way to let people responsibly handle their personal finances. We want to activate them to start planning their financial future. And make them improve not only their financial situation, but also increase the impact that they have with their money on themselves and others. We want to find a way to decrease the risks that people are exposed to, caused by the lack of financial planning and structure in their lives. The preferred solution (for Topicus) is a form of application, website or tool.

1.3.1 Problem cause

According to the Nibud, 2,5 million Dutch households lack financial resources and as a result experience unwanted financial risks (Nibud, 2017). Nibud states that just telling people to start saving is not enough to activate them, because almost everybody understands that saving money is necessary. Furthermore, a part of the households, especially those with low incomes, just do not have sufficient financial means to save enough. Another reason for neglecting to save is psychological (Nibud, 2017). The saving interest is close to zero and because of that the incentive for people to save is lower as they feel it is without results.

Another cause that Nibud identifies is the current Dutch tax system. Dutch citizens gain certain tax advantages when their savings are below a threshold of 1500 to 2000 euros (depending on the municipality). If their capital exceeds that threshold, a lot of tax benefits are lost. As a result the incentive is to stay below that threshold and spend instead of save money. Nibud advises to have at least 3500 euros of money saved, which is far above the remission limit. So in the current system, these tax advantages give the wrong incentives those households.

Nibud also advises that the government and businesses to aid the consumer in saving their money. Their suggestion is to make the customer automatically save beforehand. This can be done with the purchase of a car, by automatically setting money aside to cover repairs in the future. Or by including an amount for house maintenance in the monthly mortgage payments.

1.4 Research objective

The goal is to create a software product that activates and helps people to live a responsible financial life. This product should help people with organizing or structuring their finances, and also motivate them along the way. It should give them perspective on, or at least awareness of, their financial situation both now and in the future.

Also the impact, both social and ecological, that people can make with their financial resources should be factored in. This is something that is very important to Topicus, as they

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strive to not only to be profitable, but also make a positive impact on society. For example, money on your savings-account has low risk and sounds very responsible, but gains little benefits in both interest and impact. Lending out micro-loans to people in developing countries, crowd-funding a local business, or investing in solar panels has more risks, but can be very rewarding in terms of interest and make a positive impact on society. This positive side to acquiring personal capital can contribute to peoples happiness and engage them more with their financial life.

1.5 Target group

Everyone should be living their financial life in a responsible way, but this project targets consumers that are currently not interested in, or activated to improve their financial situation. These people have little (or no) interest in financial products and their own financial situation. That does not necessarily mean that they are in trouble or that they have large amounts of debt, but that they can gain from being more aware of their situation.

In fact people could have a very healthy checkbook and spend significantly less than their income, but can still gain from that awareness. Having money, but not using it, is also something that can be improved. The impact that can be made by investing could make people enjoy their capital more, and give them the opportunity to contribute to something that they feel is important.

As we want to develop either a website or a mobile app, people who have no affinity with computers and smart phones are out of scope for this project. People have to be responsible for their own finances, so children and people that outsource their personal finances are not the target either. Finally, after some preliminary research we concluded that extreme problematic cases, such as persons in debt restructuring, are also out of the scope. This is because we find it extremely unlikely that we can develop a solution that does a better job than the professional care that those people are currently receiving. But this solution can potentially help prevent those extreme problematic cases by activating people to mitigate their financial risks and pay off their debts.

1.6 Research questions

This section states the research questions that are answered during this project. In this research two types of research questions shall be answered, knowledge questions (KQ) and design problems (DP) (Wieringa, 2014). The first three questions are answered using literature and statistical analysis of research data. The design problems are solved using design science. Finally, in the last question the requirements found in the literature are verified.

Figure1.1 shows a graphical representation of this approach.

Figure 1.1: High-level research methodology.

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KQ-1: How do consumers currently handle their personal finances?

To really understand the problem, we need to know how people are currently planning their personal finances. Which products they use and whether they do so with a preset plan or just make their choices without longterm planning. Furthermore, it is relevant to know the current trends in the consumer finance market.

• How aware are consumers of their current financial situation?

• Which personal financial products are used in the Dutch consumer finance market?

• Which trends and issues can be identified in consumer finance?

• Which risks and problems are consumers exposed to and what causes them?

KQ-2: How should consumers responsibly handle their personal finances?

In order to move people in the right direction with their financial situation, we have to know the best way to do that. Understanding what consumers want and need to do is critical in helping them accomplish this. An overview of the used financial products would give a better understanding of the current consumer financial market. Finally, the effects of those products and planning decisions need to be known.

• How should consumers mitigate the risks and problems they are exposed to?

• What are possible products for personal finance management?

• What is the effect of financial products on consumers’ financial situations?

KQ-3: How can we help and activate consumers to responsibly handle their personal finances?

This question is already partly answered in the ‘Problem Cause’ section. In order to help consumers in planning their financial situation, we first need to understand the reasons why they currently neglect that. Eventually we will look for ways to change their behavior.

• What are reasons for consumers to neglect their financial situations?

• How can we activate consumers to change their unwanted or irresponsible behaviors?

• How can we activate consumers to work on their financial situations?

DP-4: How can we design a solution which activates consumers to responsibly handle their personal finances?

The core of this research comes down to activating consumers to change their behavior and to make them more proactive in their financial situation.

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KQ-5: What effect does the proposed solution have on the way consumers handle their personal finances?

Finally we have to measure the effect of our solution on the way consumers plan their personal finances.

• Will consumers use this solution?

• Does the usage of this solution affect their financial situation?

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Chapter 2 Methodology

2.1 Plan of approach

The approach of this project is divided into multiple steps, the sections below describe each step. To structure the plan of approach of this project, I will follow the Design Science Research Methodology (DSRM) (Peffers et al.,2007). This allows me to structure the design of the product, and give this research a methodological framework to work by.

Design Science Research Methodology (DSRM)

This methodology has originally been developed to provide a methodological structure for research in the field of Design Science on Information systems. This is defined as: Design science ... creates and evaluates IT artifacts intended to solve identified organizational problems (Hevner et al., 2004, p. 77). However, in this case the methodology will be applied to non-organizational problems. The process is divided into six steps for designing a solution for an IT-problem. See Figure 2.1 for an overview of the Design Science Research Methodology (DSRM) process.

1. Problem identification and motivation.

2. Objective of the solution.

3. Design and development of the solution.

4. Demonstration.

5. Evaluation.

6. Communication.

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Figure 2.1: Overview of the DSRM Process Model (Peffers et al.,2007).

Step 1: Problem identification and motivation

In order to find out how the consumer currently plans his financial future, an overview of the products currently used is needed. Furthermore, information on when and why a consumer currently starts planning their finances is required. Do age, gender or education influence the way a consumer plans (or does not plan) their finances? A set of personas (fictional persons that are representations of the target group) are created, in order to have a detailed view on the target group. Finally, the effects of financial planning and saving need to be investigated.

This will be done with literature research and using statistics from Nibud, Dutch National Bank (DNB) and Central Bureau for Statistics (CBS). In this step KQ-1 and KQ-2 will be answered. This step is discussed in Chapter3.

Step 2: Defining objectives

To activate consumers, we create a list of initial goals and objectives for a solution that helps and stimulates consumers to improve on their financial situation. In this step objectives for the developed product are defined. In order to do that KQ-3 will be answered. Furthermore, some investigation into already developed solutions will give us an idea of what works and what does not work when activating consumers. After some initial research into comparable products I found several initiatives that already operate on solving this problem. This step is discussed in Chapter4.

Step 3: Design and development

This step in the DSRM process is modified slightly for this project. During the multiple iterations of the process the focus shifts from developing an idea, to developing a way to retrieve the data and finally to the product design. This step is therefore broken up into four parts.

Step 3a: Idea development

In this step a clear plan for activating, motivating and informing the user is developed.

This may be achieved by creating better insight and reachable goals, but could also use

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gamification or a structured saving app (such as the Rabobank App Peaks (Peaks, 2018)).

Several ideas will be investigated and multiple alternatives will be presented. Using a scoring approach, each alternative will be scored and finally the best solution will be selected. In this phase DP-4 will be answered. This step is discussed in Chapter5

Step 3b: User eXperience (UX) design

After the initial idea has been developed, the way consumers will use the product is designed.

UX-design focuses on the way users interact with the solution. What information is shown, and how it can effectively be used to inform and activate the user without causing unnecessary frustrations and distractions. Example screens-shots are designed that show vital design elements, and display how the user is activated. This step is discussed in Chapter6.

Step 3c: Data retrieval

In order to create the prototype, (financial and personal) data are required. In this phase we investigate which data are accessible and how they can be accessed. We already did some preliminary research on financial transaction data, and found some promising information on ways to retrieve reliable data for the users. This step is discussed in Chapter6.

Step 3d: Product design

After developing an initial idea and developing an understanding of the retrieval of the data, the full product can be designed. The goal is to design both a technical specification and an interface for the final product. The design should be detailed enough for a development team of Topicus to be able to create the first version of the product. This step is discussed in Chapter6.

Step 3e: Prototype development

In this step a working prototype of the product will be developed. The goal is to obtain a proof-of-concept of the initial idea behind the design and show viability of the product. The main features should be working and a demonstration for users and other stakeholders can be performed. This prototype is also used for testing in the next steps. This step is discussed in Chapter7.

Step 4: Demonstration

In this step we will test the prototype on various test subjects. The goal is to measure whether we achieved the objectives that we set out in Step 2. We will use a survey to measure the demand from users for various features. With the data obtained from the survey we will create a prototype. And that prototype will be used for UX-tests. This step is discussed in Chapter 7.

Step 5: Evaluation

In this step we will evaluate the test results from Step 4. In this step we will answer KQ-5.

This step is discussed in Chapter 7.

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Step 6: Communication

The results of this research will be the designed product, the answers to the research questions and a set of recommendations for Topicus. The answers, conclusions and recommendations will be communicated through though this report, and can be found in Chapter 8and 10.

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Chapter 3 Problem identification and motivation

This chapter provides an overview of how Dutch consumers currently handle their finances.

It explains which products they use and which major problems exist in the current consumer financial landscape. The goal of this chapter is to summarize the main issues for Dutch consumers and to provide an insight in what causes those issues.

3.1 Overview of financial products

Several groups of financial products are used by the Dutch consumer. We looked into the most commonly used products and trends. An overview of the common financial product is provided by Nibud (AFM, 2018):

• Insurance.

There are many types and categories of insurances. The most common insurances are mentioned below.

– Life insurance.

– Car insurance.

– Damage and house insurance.

– Health insurance.

– Travel insurance.

• Loans.

There are several ways a consumer can borrow money, ranging from mortgages to private loans. The most common reason to borrow is to buy a house, car or mobile phone. But there are also short-term loans such as revolving credits or credit cards.

• Savings and payment accounts:

• Mortgage.

Mortgage is special type of loan as it includes a claim on the underlying asset that can be activated when the borrower can not for full his obligations. This makes the investment less risky for the financier, which lowers the interest rates. Consumers often use mortgages to finance their house. Mortgages come in different forms, we will discuss the most common below.

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– Annuity mortgage.

The client pays a fixed amount, built up in two parts: the interest and the repayment. As the mortgage is paid off, the interest decreases and the repayment increases thereby changing the distribution of the mortgage payment.

– Linear mortgage.

The client pays fixed repayment each month. The interest payment gets lower every month.

– Interest-only mortgage.

The client only pays interest and never pays back its debt during the mortgage period. At the end the full debt is paid or a new mortgage is taken out. This type used to be very common, as it maximizes tax deduction of the mortgage, but due to new legislation this type is less popular.

– Saving mortgage.

A type of interest-only mortgage. But in addition the client saves monthly into a locked savings account. These savings are used to pay off the debt in full at the end of the mortgage.

– Investment mortgage.

A type of interest-only mortgage. But in addition the client monthly deposits money that is invested on behalf of the client. The invested amount, with returns, should be enough to pay off the mortgage in full.

Accounts for consumers to store money on the bank. Most accounts are directly accessible, but some products offer ways to deposit money for a fixed period against higher interest rates.

• Pensions.

In the Netherlands every working individual receives a state pension (called AOW).

Next to that there are several options to build up an additional pension. The most common type is the pension fund in which the employer and employee deposit monthly.

But there are several ways to build up your individual pension. Banks and financial institutions provide pension products, but also investments such as houses could help build up a pension.

• Investments.

There are various forms of investing. The most common are discussed below.

– Crypto-currencies.

Crypto-currencies are a new type of investment. These so called crypto’s are distributed in a blockchain network that keeps track of currency transactions.

The value of these products is highly volatile with fluctuations of more than 100%

within a day, so investment is very risky.

– Stocks and bonds.

Investing directly in either ownership or debt of corporations (or governments).

– Investment funds.

Investment funds invest on behalf of the participants. Investment funds diversify their investments, which should reduce the risk of the investor.

– Structured products.

Several types of structured products exists, such as futures, options and trackers.

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These products are more complex than the products discussed above and often consist derivatives of products mentioned above.

Figure 3.1: Savings and debts in Dutch households (Wijzer in Geldzaken, 2016).

A report from Wijzer in Geldzaken (2016) shows statistical data on the Dutch consumer financial market. The report bundles data from the DNB, Nibud and CBS to create an overview of the consumer financial products as well as trends and sentiments on the consumer market. Figure3.1shows the distribution of savings and debts in the Dutch households. The largest parts of consumer assets is in savings and deposits.

3.2 Current state of consumers’ financial situation

Though the Dutch consumer has a significant amount of savings and deposits, 45% of the Dutch consumers have difficulties getting by each month (van der Schors et al., 2015). The following specific groups experience the most difficulties:

• People with low income.

• Low and middle educated.

• People on state benefits.

• People with rental houses.

• 45 to 64 year olds.

• Singles (with or without children).

• People with debts or who experienced negative financial events.

Figure3.2 shows that 32% of the people save automatically and only 25% of the households set up a budget. Also, roughly 72% know how much they have left after paying their monthly bills. van der Schors et al. (2015) concludes that people who make a yearly budget also keep track of their expenses and financial administration on a regular basis. They also found

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that not making a budget does not mean that people do not have insight in their financial situation. However, Nibud could not find a link between making a budget and getting by.

Figure 3.2: Automatic savings and budgets for Dutch households (Wijzer in Geldzaken, 2016).

Another important indicator according to Nibud, is whether consumers know in which months they have more expenses. Of the group of consumers that have trouble getting by, 66% does not know in which months their expenses are highest. Also that group often has regrets after buying something. After the purchase, the same group indicates that they often have bought something that they could not afford.

3.2.1 Financial Literacy

Tom´aˇskov´a et al. (2011) defines financial literacy as a set of knowledge and skills necessary for people to financially secure themselves and to behave actively in the market of financial products and services. Key elements of being financially literate include understanding financial products and markets, economic principles, and understanding how to use financial products. Financial literacy is identified as a key indicator of retirement planning. And people who are lower financial literate are less likely to trade, invest and re-balance portfo- lio’s (Gerrans et al.,2018). Financial literacy has shown to be a good indicator on intentions of saving or planning of retirements (Gerrans & Clark,2013). Financial education has shown to have positive effect on long term behavior, but little to no effect on short-term financial behavior such as paying credit-card bills on time or making monthly mortgage payments (Wagner & Walstad, 2015). Shen et al. (2016) has shown that people with higher financial literacy are less likely to experience financial disputes, and when they experience a dispute, are more likely to handle the problem. Investors with low levels of financial literacy are less likely to consult advisors (Calcagno & Monticone,2015). Other evidence states that financial literacy and household wealth have a significant positive correlation (Shen et al.,2016).

Alessie et al.(2011) tested subjects on three basic principles in financial literacy (compound interest, inflation and risk diversification). Their result has shown that only 44.8% of Dutch respondents could answer these basic questions on financial literacy correctly. A study by Rooij et al.(2011) and DNB also found that there was a strong link between financial knowledge and retirement planning. People with more financial knowledge were more likely to

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plan for retirement. So being financial literate is a good indicator of making responsible financial decisions and being able to handle yourselves in the financial market.

3.2.2 Pensions

The Dutch pension system is built up in three pillars (Vereniging van Bedrijfspensioenfondsen

& Stichting van Ondernemingspensioenfondsen,2009).

1. The state pension (AOW).

The state pension is the base income for retirees. The amount one receives is linked to the minimum salary in the Netherlands. Couples each receive 50% of the minimum salary and singles receive 70%. In 2007, 2,7 million people received a state pension, the total amount was 25,5 billion euros.

2. The collective company pension.

The collective pension is built up by most people who work in salaried employment.

These pensions are organized by pension funds and insurance companies. The payout is determined by the pension premium that is paid by employee and employer, and the return on the collectively invested pension funds.

3. Individual pension products.

There are several ways to build extra pension. Savings, investment in a house or investing in stock market and funds are an option (PensioenPower, 2007). Another possibility is private pension products of banks and insurance companies such as life annuities and blocked bank savings account which have various tax benefits that regular equity investments do not have.

These three pillars combined determine the amount someone receives after retirement. Cur- rently, there are various social developments in the Dutch pension systems, which requires attention from the Dutch consumer (van der Schors & Warnaar,2015). These developments include:

• Increasing number of self-employed workers.

• Less government involvement.

• People change jobs more often.

• Changing pension system.

This causes the pensions to be more complex and the consumer to be more and more self- reliant for their own financial future. Unfortunately, not all consumers live up to this new responsibility. Only 40% of the consumers between 25 and 65 know whether their income will be enough to cover their expenses after retirement (van der Schors & Warnaar, 2015).

This unpreparedness, coupled with the interest-only mortgages discussed in Section 3.2.3, can result in financial problems after retirement (such as forced house sale). A study done by Rabobank concludes that, even with partly repaid houses taken into account, 31% of the salaried workers and 43% of the self-employed do not have enough pension (where enough pension is defined as 70% of the current working income) (Treur,2018). The same study also states that currently 52% of the retirees still have a mortgage on their houses, compared to only 40% in 2006.

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3.2.3 Interest-only mortgages

The largest part of the Dutch mortgages, more than 50% (Knopers, 2018), are interest-only.

This means that, during the course of the mortgage, there is no built-in repayment in the monthly premium. So the full amount of the loan has to be paid at the end of the mortgage (Rabobank,2018). It is possible to make intermediate repayments, but this is often limited to 10 or 20% of the outstanding mortgage per year (Vereniging Eigen Huis,2018a). The benefit of an interest-only mortgage is the fact that the Dutch tax system allows you to deduct the interest costs of your taxable income (Belastingdienst, 2018). This can effectively reduce the net interest costs by up to 51%¹. The lack of repayment in an interest-only mortgage causes the deductibility to be maximal during the course of the mortgage.

Since 2001 the maximum time period for tax deduction on mortgage interest is 30 years.

This means that after the 30 years, the interest costs can no longer be deducted from the taxable income. Consequently, the net interest costs will then double (van de Laak, 2017).

This, combined with the fact that people often experience an income drop after retirement, causes problems. People have the risk of not getting a new mortgage, remaining debt (see Figure3.3) and possibly having to move out of the house to pay off that debt.

Figure 3.3: Remaining debts on interest-only mortgages (Beunderman,2017) in billion euro’s over the years 2018 to 2043. Edited for translation.

The awareness of consumers on the mortgage tax deduction legislation’s is low. A survey among 4,000 seniors concluded that 40% of the elderly with an interest-only mortgage have no plan to pay off the remaining debt (EenVandaag, 2018). The DNB states that 200,000 Dutch households with interest-only mortgages might experience financial trouble because of

1https://www.nibud.nl/consumenten/inkomstenbelasting/

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that. Especially the period from 2035 to 2038 will see many ending interest-only mortgages.

This can result in house sales, which can also have an effect future house prices as the amount of available houses increases.

3.2.4 Debts

Debt is an increasing problem in the Netherlands. The total number of people that request debt assistance is increasing every year (Madern,2014) (see Figure3.4), with an average debt of 37,700 euros in 2013. One in every five households has risky debts (Divosa, 2017). One of the causes of the increase in debts of the past years, is the fact that the crisis caused a drop in house prices. Some mortgages are higher than the current value of the house, and there has been a 23% increase in mortgage arrears in 2014.

Another cause for the increasing debt is the new health-care insurance system. With the obligatory deductible excess (the part of the health-care costs the insuree has to pay for himself) in the health-care insurance, the amount of problematic debt in the health insurance is increased to 1 billion euros. Nibud identifies a lack of financial skills and wrong choices (such as high loans) as one of the main causes of financial trouble and debts. But also the Dutch Tax Authority is a common creditor for people with problematic debt (Moerman &

Oberzaucher, 2014).

Figure 3.4: The number of debt assistance requests in the Netherlands (Madern, 2014).

Dutch municipalities are responsible for debt prevention and control in their municipalities (Rijksoverheid,2018). They have several ways to help people with problematic debts. A possibility is to mediate between creditor and debtor, or advise and manage a (forced) personal budget. Several legal tools can provide mediation with creditors. A possibility is a forced 6 month breathing break, during which the creditors can not make any claims on outstanding debts. This gives the debtor time to get their affairs in order. Another approach is to let a judge decide on how the debt is going to be resolved.

The current cabinet is planning to decrease the number of households with problematic-

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debts by providing better help and advice. The cabinet is consulting with municipalities to discuss the new problematic-debt approach. They want to focus on preventing fines, and excesses in debt collection.

3.2.5 Self-employed

The number of self-employed workers in the Netherlands is increasing. Currently about 12%

of all the working people are self-employed (Pelgrim, 2018) and this percentage keeps on rising. For about 900,000 people, their self-employed business is their main source of income (Centraal Bureau voor de Statistiek, 2018). This shows an enormous increase compared to 330,000 in 1996 (Pelgrim,2018).

There are several causes for this increase. Self-employed workers are cheaper to hire than salaried employees because of tax regulations. The cost of a self-employed worker, given the same income, is about half of the cost of an employee with an employment contract. Ad- ditionally they are easier to fire than salaried employees. Because of this, there is a strong benefit for the employer to contract self-employed workers instead of employing them.

For the self-employed workers there are also a lot of benefits. The most important one is the fact that they do not have a boss to listen to. They can set their own working hours and feel free and flexible (Pelgrim, 2018). Almost 81% of the self-employed are happy with their jobs, compared to 78% of the salaried employees. Most of them started in salaried employment and later started their own business.

But there are several disadvantages to self-employment. The most important one is the insecurity of income. Close to 12% of the self-employed live below the poverty line, compared to just 3% of the salaried workers. Also a lot of self-employed workers are not really self-employed, but just have different (cheaper) labor contracts than salaried workers. Close to 15% of the self-employed match the characteristics of fake self-employed. Meaning that they have the same work relation as salaried workers, but do not have a normal employment contract (e.g. parcel delivery drivers). The CBS concluded that only 1 in 5 self-employed, started their own business voluntary (RTL Nieuws,2017). Most people are self-employed out of necessity (RTL Z, 2016).

Self-employed lack some benefits that salaried workers receive. They have to take care of their own retirement plan (Kamer van Koophandel,2018). But, as stated earlier, 43% of the self-employed do not have sufficient pension arrangements. Also, self-employed lack the job security that an employment contract provides.

3.2.6 Financial risks for consumers

The absence of sufficient financial resources can bring a lot of risks to a consumer. When an unexpected expense needs to be covered and the available money at hand is insufficient, people often resort to a loan to solve the issue. Nibud (2016) advises consumers to save 10%

of their monthly net income for unexpected expenses such as replacing inventory (computers, car, dishwasher, and fridge), cover unexpected bills (health insurance), and car and house maintenance. For a single person on state benefits without a car this means having at least 3300 euros of savings at hand.

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Losing income is also a risk that has to be taken into account. According to a recent study (van der Schors & Warnaar,2015), only 40% has knowledge of their financial situation after they lose their ability to work. 56% of the subjects replied that know that they can pay the bills if their partner dies. Only 45% of the subjects sees the covering of the risks of unem- ployment, incapacity for work and the death of a partner, as an important financial goal.

So there is a lot of unawareness regarding the risk of losing income. In a study by Nibud, CentiQ and Wijzer in Geldzaken(2010) 50% of the respondents stated that they experienced an income drop of more than 500 euros after losing their job. Almost 70% of the unemployed have trouble getting by, 50% of them have less than 1000 euros of savings, 30% experience financial troubles, and another 20% have a large risk of getting into financial troubles.

For consumers with a mortgage, the current interest rates also present a risk. At this moment the interest is very low. When, in the near future, interest rates start increasing, this can result in a high risk of payment issues with mortgage loans (Financieel Recht Advocaten, 2016).

3.2.7 Opportunities for consumers

After we have discussed the problems and risks consumers have, we can also find a lot of possible untapped opportunities that consumers can gain from. This section discusses some of those opportunities and gives an indication of the impact of theses opportunities.

Sustainable investments

A trend in the past years has been investing in sustainable upgrades for houses. The recent Dutch energy agreement aims to disconnect 2 million houses from the natural gas network in the Netherlands by 2030 (van Gerven,2019), which requires investments by home owners.

There are large costs involved with sustainability improvements, but those investments also have significant returns. For example solar panels can have a return of about 6% on their investment (Milieu Centraal,2018). Compared to the current saving interest of maximal 0.35%

this presents an enormous opportunity. The costs of these panels keep decreasing, so it might even be a better investment opportunity in the future. (van Gerven,2019) shows several options for sustainable house improvements such as heat pumps, wall and floor isolation and efficient radiators. Several tax discounts and subsidies might apply on these investments.

When home improvement is not an option there are several sustainable investment funds that ensure the money is invested in a responsible way (Portaal Duurzaam Financieel, 2019).

For individuals with a surplus in savings, this might be a solid opportunity with more returns that the savings account. Since the surplus savings are not immediately needed as buffer to cover unexpected expenses, taking a bit more risk by investing could be something to consider. In this way investments not only have a monetary benefit, but also result in an environmental benefit.

Lowering mortgage interests

Due to lower interest rates, refinancing the old mortgage can result in lower monthly interest payments (Vereniging Eigen Huis,2018b). Depending on the period that the current interest rate is fixed, several costs and charges might apply. A sensible use for the resources freed up

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by the lower monthly costs, could be to make (larger) pay-off payments to lower the mortgage debt. This further decreases the monthly costs over time and lowers impact of the possible risks such as losing income.

Tax benefits

The Dutch tax system is very complex. There are several tax advantages for different income scales. Rent, childcare and health-care tax benefits can result in a benefit of up to 350 euros per month (NU.nl, 2014). Also there are several municipal tax benefits and discounts (RADAR, 2018). Some of these benefits are connected to the income tax, others have to be applied for by the consumer himself. A lot of benefits can be gained by applying for these benefits timely.

But these (often monthly paid) benefits also result in a source of risk for consumers. Moerman and Oberzaucher(2014) describes how the dutch tax benefits system can cause problematic debt. The system works with a monthly tax advance, that is finalized when the yearly income tax is calculated. The tax system uses an estimate, often made by the beneficiary himself, of the yearly income to calculate the monthly tax benefit. If the estimate turns out to be incorrect, the yearly income tax is used to correct that. In 2011, more than 1.67 billion euro’s of tax benefits had to be recovered by the Dutch Tax Authority (Moerman & Oberzaucher, 2014). When the tax payer does not have enough reserves to immediately pay back the incorrectly received benefits, this turns into a debt.

Insurances

Only 36% of the Dutch consumers checks regularly for double or under insurance (van der Schors et al., 2015). Being under or double insured can present both a threat as an opportunity. It can expose the consumer to unwanted (and unexpected) risks, but may also lead to structurally overpaying for insurance. Another aspect is the degree of insurance. Both the maximum of payout and the amount of compulsory excesses (e.g. in health insurance) can be often optimized to reduce fixed costs. SNS Bank (2018) provides an overview of which insurances have to be checked when moving in, to prevent double or under insurance.

3.3 Personas

We created five personas to get a better understanding of the users experiencing the problems.

A persona is a description of a specific person who is a target user of a system being designed, providing demographic information, needs, preferences, biographical information and a photo or illustration (Dong, Kelkar & Braun,2007). Each have their own challenges, problems and opportunities. Later these personas can be used to display the benefit of the solution. See AppendixA for the personas.

3.4 Conclusion

We conclude that there is a significant lack of awareness of the financial situation by the Dutch consumer. The fact that the monthly balance between income and expenses is un- known for a large part of the households indicates that. An even larger group does not know whether they have built up enough pension to retire without financial troubles. We know

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that a large part of that group will actually have financial troubles after retiring.

This unawareness becomes more concerning when taking into account the financial risks that consumers are exposed to. Losing income, high interest-only mortgages and insufficient resources (savings) to cover unexpected expenses can cause bigger problems in the future such as forced house sale. On the other hand a lot of opportunities are available that might not be utilized. Sustainable investments but also unused tax benefits and lowering mortgage interest can be very beneficial for households.

The increasing (high) debts have also been a big issue in the last years. As a large part of the households has risky debts, the number of debt assistance requests are increasing each year.

Government policy aims to prevent the increasing of household debt. But there are still a lot of improvements to be made to decrease the number of households with problematic debt.

From this literature study on financial issues, we created a diagram (see Figure 3.5). This shows the relation between the several issues in perspective to the larger problem of a problematic financial situation. After reviewing the roots of the issues, we decided to focus on improving the knowledge of the financial situation and financial planning, shown in red in the figure. As a result of that, we will improve on the yellow colored issues.

Figure 3.5: An overview of the problems and causes. We focus on the red colored issues and thereby improve on the yellow colored issues.

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Chapter 4 Solution objectives: How to improve the knowledge and planning?

The main focus should be on knowledge of the financial situation and financial planning. In this chapter we will research ways to improve and motivate people to work on those issues.

4.1 Responsible financial behavior

To motivate responsible financial behavior, the elements of that behavior should be defined.

In this section a description, based on literature, of responsible financial behavior is provided.

This should be a guideline for the behavior we want to enforce.

van der Schors and Warnaar (2013) provides an overview of the five competences an adult must have to be financially self-reliant. Someone is financially self-reliant when he makes informed choices in such a way that his finances are in balance, both in short and long term (van der Schors & Warnaar, 2013). These competences are defined as follows:

• Mapping. The consumer has an overview of his finances in such a way that provides the possibility of keeping his finances balanced.

• Responsible spending. The consumer spends his income in such a way that his short term finances are balanced.

• Looking ahead. The consumer has an understanding that events and wishes have long term financial consequences and adjusts his spending behavior accordingly.

• Consciously deciding on financial products. The consumer chooses the financial products he uses based on his budget, and fitting to his personal and household situation.

• Obtaining sufficient knowledge. The consumer has to obtain all relevant knowledge to keep his household finances balanced in the short, mid-long and long term.

Specifically for the long term,van der Schors and Warnaar (2013) constructed a cycle of five steps to ensure that the consumer stays financially self-reliant in the long term. See Figure 4.1 for a schematic overview of the usage of these five steps.

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Figure 4.1: Cycle of five steps that ensure financial self-reliance in the long term (van der Schors & Warnaar,2013).

• (Re)setting goals. The consumer decides which wishes he has and realizes what risks he faces at unforeseen moments in the future.

• Mapping of the current situation. The consumer has an organized financial administration which can be used to provide insight in the possible consequences of a certain scenario.

• Creating an overview of the financial situation in the future. The consumer makes an assessment of his future income, expenses, assets, and debts given a certain scenario.

• Obtaining insight in the future. The consumer is aware of his financial situation in the future for a given scenario. He knows which deficits might occur and how he can mitigate those.

• Making choices. The consumer considers several financial possibilities or products based on his personal situation and the characteristics of the product, and makes a decision based on these considerations.

Retzmann and Seeber(2016) recommend several competence areas in which financial education should teach competence:

• Decision-making and rationality. Consumers should be able to decide rationally between different options and actions given constraints such as budget or creditworthi- ness. They should be able to anticipate the consequences of the possible options and

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evaluate them according to their own preferences, in order to select the option with the best effect on their financial well-being.

• Relationship and interaction. Consumers should understand that economic transactions are the exchange of good or services where both parties benefit from. They should be able to understand the interests of both parties involved and analyze whether those interest are conflicting. They should be able to identify the actions of both parties and understand the consequences of those actions. Also they need to know the formal and informal rules of these economic relationships.

• System and order. Consumers should understand economic interrelationships and their systemic effects. They should be able to explain pricing in different markets, and analyze the economical conditions for markets to be efficient. They should understand the effect of markets, regulatory systems and the relationship between the financial markets and government. They should be able to relate the economic, social and ecological effects of government actions, and describe the economic consequences of income and asset distribution by markets on nations and society.

These competences and requirements provide a guide for the way consumers should behave.

Based on these competences several guidelines can be set. The Nibud BufferBerekenaar (see Section4.4) provides a guideline for a saving goal. Retirement should also be kept in mind when looking at behavior. During the working life, arrangements have to be made to ensure a sufficient retirement plan. Sufficient is in most cases defined as 70% of the income before retiring (Treur, 2018).

Yoong et al.(2013) defines financial capability as the internal capacity to act in one’s own best financial interests, given the socio-environmental conditions, which is similar to the definition of financial self-reliance from Simonse et al.(2017). Yoong et al. (2013) developed a conceptual model of the factors that drive financial capability. They state several factors that do, or do not, contribute to financial responsible behavior (see Figure 4.2). Of course financial literacy influences the behavior. But the behavior is also influenced by personal preferences and attitudes, general decision-making capabilities, and self and situational awareness. They also mention constraints that could negatively influence responsible behavior, such as societal and environmental constraints, but also the (lack of) financial resources.

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Figure 4.2: A conceptual model of financial capability (Yoong et al., 2013).

4.2 Nudging

Nudging can be useful to stimulate preferred behavior. In behavioral economics the concept of nudging is defined as gently encouraging people to make choices that are likely to benefit the chooser and society in the long run (Kroncke, 2018). The emphasis lies on gently, because nudging requires that freedom of choice is preserved. Nudging is often used by policy makers as a (better) alternative for enticements or enforcements such as tax benefits, subsidies or excises. Nudge theory is based on research on cognitive biases and dysfunctions that cause us to make bad decisions (White,2017). The consensus is that choices (for example in retirement forms) can not be displayed in a neutral way, so policy makers have to be aware how the choices are presented and what the effect of the presentation is on the chooser. Nudges are liberty-preserving approaches that steer people in particular directions, but that also allow them to go their own way (Sunstein, 2014). For example, the choice of a default setting can have a large effect on the actual choice that the user makes. A study by the National Bureau of Economic Research indicates that a default setting of enrolling in a pension plan (opt-out) increases the participation rate by 25% (Beshears et al., 2008). This approach takes advantage of the laziness of people to nudge them into doing something that is right for them. These kinds of insights can be used to create better policy and predictions of economic behavior (Camerer & Loewenstein, 2004). Sunstein (2014) identifies ten nudges that are important for policy makers:

• Default rules. For example automatically enrolling in programs. The idea is that, unless the user takes active action to do the ’wrong’ thing, the right choice is selected.

• Simplification. Complexity is a serious problem. It causes confusion and it creates

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an additional barrier to participate in a program or product. Simplifying enrollment or regulation can greatly benefit participation and obedience.

• Use of social norms. Emphasizing the choices of (most) other people has a lot of influence. This information is most effective when it is as local or specific as possible.

For example showing what the neighborhood chooses or what other people with the same income choose.

• Increase in ease and convenience. People tend to make the easy choice. Resistance to change is often a product not of disagreement or of skepticism, but of perceived difficulty or of ambiguity (Sunstein, 2014). So it is important to make the preferred choice easy and accessible.

• Disclosure. For consumers, the disclosure of important information can be very effective. For example, the environmental costs associated with energy use or the full cost of credit card payments can lead to a nudge into the desired and ‘best’ choice for the consumer.

• Warnings, graphic or otherwise. When serious risks are involved, a warning might be the best way to nudge people. The usage of large fonts, bold letters and bright colors can be effective. Warnings can counteract someone’s tendency to be (over) optimistic and educate them on the long term. However there is also a risk that people will discount the warnings and ignore them. In which case a positive message could have a larger effect (for example rewarding good behaviour). Research has shown that people react better to warnings when they are followed by steps to counteract the risks.

• Pre-commitment strategies. When people have certain goals, it is often useful to pre-commit to certain actions. For example when having the goal to stop smoking, pre- commiting to a smoking cessation or program makes people more likely to act upon their goals. The effect is even higher when they have committed an exact moment in time when the action starts.

• Reminders. People generally tend to have a lot of things on their mind. When they procrastinate or are not taking certain action, a reminder can have significant impact.

An example is a letter to remind you to register for organ donation.

• Eliciting implementation intentions. People are more likely to engage in activ- ity if someone elicits their implementation intentions (Sunstein, 2014). For example asking whether they plan to vote or vaccinate their child can have significant effects.

Emphasizing the previous actions (‘you have voted before’) can also be effective.

• Informing people of the nature and consequences of their own past choices.

When data is available on a user’s own past choices, this information can help nudge people into making the right choices.

Nudges can be used to make people act or choose in a way that the choice-architect wants, without forcing their hand. This often helps preventing people to make, what is perceived as, a mistake. An example of such a mistake is with the choice of a consumer credit card.

Warren and Bar-Gill (2008) claim that consumers make systematic mistakes in their choice of credit products and in their use of these products. These observed mistakes indicate the existence of deficit in either information or rationality, or both. They observed that many

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consumers maintain a (high-interest) credit card debt, while having a cash balance of over

$ 2000. Nudging can effectively be used to help prevent these mistakes. Smith and Zywicki (2015) describe the largely positive change in consumer financing choices by requiring the issuers of credit cards to make interest rates and late payment fees clear and prominent in their offers. In this way consumers can better understand what they are signing up for.

4.3 Increasing financial responsibility and discipline

In literature there are several factors that help increase financial responsibility, discipline and self-control in general. See Figure4.3 for an overview of the discussed literature. These factors could be implemented in a solution that improves financial responsible behavior and enforces discipline. Financial behavior consist of day-to-day money management, decisions about financial products and financial planning (van Raaij & Sheva,2016). In this section an overview of factors that have shown, in literature, to improve this behavior will be discussed.

These factors will be used as elements of the proposed solution.

Figure 4.3: An overview of elements that aids financially responsible behavior improvement from literature.

Financial literacy and education

As stated earlier, financial literacy is a key influence in increasing responsible behavior and improving the financial situation. Education in financial literacy consists of knowledge and skills (van Raaij & Sheva,2016). Knowledge of a concepts like interest, inflation and the value of money are key indicators of financial literacy and understanding those will improve financial

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behavior. The impact of understanding the financial market is significant. Wagner and Walstad(2015) state that financial literacy and education will influence long-term behavior, but do not have immediate influence on the behavior. They state that financial education can be a valuable contributor in shaping thinking that affect what people do to create a better financial future for themselves. Several studies suggest that, even in advanced countries, people are still lacking in financial literacy (Shen et al., 2016). But increasing financial literacy alone will not be enough to improve the financial situation (van der Schors et al., 2015). Focusing solely on the transfer of knowledge will not lead to a change in behavior (Simonse et al., 2017).

Knowledge of personal situation

Understanding the personal finances is the first step in keeping your income and expenses in check (van der Schors et al., 2015). Only 43% of the Dutch consumers check their bank balances weekly, update their administration monthly and make a yearly budget. Knowing your income, expenses and assets is vital in making payments and preventing overspending.

Setting SMART Goals

Setting goals and making those goals Specific, Measurable, Acceptable, Realistic and Timely (SMART) is crucial in motivating people to reach their goals (Madern & van der Werf,2015).

Instead of a large goal such as ‘paying off all my debts’, a better goal might be ‘paying off 100 euros of my debt each month’. Specific goals tend to increase the effort people put in them. Also, making these goals more concrete can increase the effect of feedback as these are easier to measure. The goals should be challenging, but not too complicated (Orlemans

& Rijsewijk, 2003). Locke and Latham (2002) stated that the most difficult goals produced the highest level of effort and performance. As it turns out most people do not have saving goals (van der Schors & van der Werf, 2017). Setting SMART saving goals could improve the success in saving for consumers.

Planning

Financial planning can be defined as a continuous process that aims at reaching wishes and goals of clients on the short and long term (Wernsen,2007). Making a plan and taking action in achieving the SMART-goals is a key part in self-regulation (Haws, 2016). Budgeting is a way of planning to reach goals, but other ways of planning also proof useful. For example, when trying to save on groceries, a shopping list could be a very effective tool for decreasing impulse purchases (Haws,2016).

Future perspective

When making goals and plans for the future, it is sensible to look at what outcomes the future could bring. This will help to motivate and refine plans (Haws, 2016). Focusing on benefits in the future has proven to increase self-control. People tend to act more on goals when they know what future trade-offs there are. For example spending too much now, will lead to not being able to retire early in the future.

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Monitoring and feedback

When goals are set, feedback on progression is necessary to maintain the motivating effect (Madern & van der Werf, 2015). People require feedback that reveals progress in relation to their goals (Locke & Latham, 2002). The reaching of (sub-)goals increases the belief that the larger goals are reachable, because of the small successes on the way. Haws(2016) states that reflection and behavior in the past influence present choices. For example, taking a fruit salad after an unhealthy meal to balance out the bad behavior. Furthermore, they state that the effect is only present when the past behavior shows successful self-control.

Binding techniques

Use binding techniques to force people to keep agreements with themselves (Simonse et al., 2017). Scheduled money transfer to a savings account, or paying the deductible excess of the health-care insurance in monthly terms, are examples of binding techniques (van der Schors et al.,2015). In this way people are forced to live by their plans and thus are more likely to succeed. Larger expenses, re-framed as a smaller monthly expense, can make a large expense seem like something that can be handled right now (van der Schors & van der Werf, 2017).

Increasing self-efficacy

Self-efficacy, or the belief in your own capabilities, is necessary in changing behavior. Increas- ing self-efficacy can be achieved by simplifying complicated choices and structuring tasks in smaller steps (Simonse et al., 2017). For example, decision or comparison tools can have a large impact in getting the user to take action on their financial situation. Those tools make it easier for the user to get an overview of the task at hand.

Another example can be MijnPensioenOverzicht.nl, which gives the user an easy tool that helps in providing an overview of their current collective pension products. Locke and Latham (2002) notes that self-efficacy enhance commitment to goals, and that adequate training, role models and persuasive communication can raise self-efficacy.

Solution timing

Solution timing, or delivering the solution at the correct moment and in the correct way, helps to improve the impact of solutions. The impact of the solution can be increased by connecting to the current behavior, preferences of the customer or target group, and delivering the information at the right moment (Simonse et al.,2017). For example, before a significant life event, such as marriage or retirement, people often make important financial decisions.

At that moment the impact of a solution is the highest.

Social comparison

Social comparison can contribute to making the right decisions (Simonse et al.,2017). People are continuously influenced by the behavior of people around them. So showing them what most people do, or what others have done, can trigger people. Comparing people to others drives the incentive to improve. Haws (2016) states that even the presence of others makes people less likely to act on their desires and reinforces major goal violations. The accountability to another person enhances self-control.

Using data to improve financial behavior : designing the personal finance platform